The Evolution of Asian Financial Linkages: Key Determinants and the Role of Policy

Selim Elekdag, Phurichai Rungcharoenkitkul and Yiqun Wu

No 2012/262, IMF Working Papers from International Monetary Fund

Abstract: This paper examines how Asian financial linkages with systemic economies have changed over time. After developing a factor model, it estimates Asian financial sensitivities to systemic economies, and then seeks to uncover their key determinants, which include trade and financial linkages, as well as policies. In line with Asia’s growing role in the global economy—including through deeper financial integration—regional financial markets have become more sensitive to systemic economies. Asian financial sensitivities to systemic economies exhibit cyclical fluctuations, and reached historically high levels during the latest global financial crisis of 2008–09. While macroeconomic policy frameworks have helped Asian economies cope well with market turbulence, they cannot completely insulate Asian financial markets against major global financial shocks.

Keywords: WP; financial linkages; Asia; beta; global financial crisis; systemic economy; economy c; GDP ×; risk premium; market portfolio return; financial market spillover; Stock markets; Exchange rate arrangements; Foreign direct investment; Stocks; Return on investment; Global; Asia and Pacific (search for similar items in EconPapers)
Pages: 27
Date: 2012-11-01
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Citations: View citations in EconPapers (5)

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